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Trading and procurement policy

As far as the gas sector is concerned, the first half of the year has essentially confirmed the dynamics that emerged after the economic-financial crisis of 2008: consumption at the minimum levels of the last six years (-2.2% for the equivalent period of 2011) as a result, especially, of the continuing fall in consumption in the thermo-electric sector. The relative recovery in consumption recorded in the services and domestic sector (+3.1%) and the industrial sector (+0.6%) due also to colder weather conditions, was more than offset by the reduction in use recorded in the thermo-electric sector (-11.7%).

In this market context it did not have a negative impact on the Groupís operations in the sector. The first months of the year were dedicated, on the one hand, to the management of the contract portfolio with the aim of balancing and optimising the Groupís short-term position and, on the other hand, to finalising new procurement contracts for the 2012-13 thermal year.

As far as shipping activities conducted by Hera Trading are concerned, the daily adjustment of the position prevented significant impacts on costs even though the weather conditions recorded at the start of the February were particularly harsh.

Short-term adjustments, supported by efficient requirement forecasting activities, were made through purchase or sales adjustments at the Virtual Exchange Point (VEP) in Baumgarten using the reserved Trans Austria Gasleitung Gmbh (TAG) transport capacity and at NCG Germany. These transactions generally took place at favourable market conditions and made it possible to tackle the market balancing, decided by the AEEG from December 2011 onwards, in terms of opportunity rather than risk.†

The purchase of modulated gas intended for Hera Comm regulation and measurement stations was finalised in two stages in February and March, for an amount of approximately 1.6 billion m≥ for the 2012-13 thermal year, in market conditions which, even ex-post, were among the best to be found on the market.

During the 2nd quarter, flat procurement amounts were finally defined for the purpose of balancing the portfolio for direct supplies from Hera Trading to regulation and measurement stations and for off-network development by Hera Comm for the 2012-13 thermal year for a further 0.6 billion m≥.

As regards the electricity market, the first six months of 2012 featured a slight fall in consumption compared with the same period in the previous year (-2.8%) as a result of the sharp worsening of the economic crisis.

Reduction in demand, combined with significant over capacity, also caused by the turbulent and unplanned development of renewable sources (photovoltaic in particular), caused a further contraction of the spark spread of thermo-electric plants (CCGT) until they were negative many hours of the day. The increase in the price recorded on the Italian stock exchange (national standard price - NSP) was not sufficient to offset the strengthening of commodities prices which determine the price of gas.

The negativity of the market scenario, which is having an impact on producers, in particular, as far as the Hera Group is concerned, taking into account the limited installed capacity compared with the final market, was strongly countered by operations in the DSM (Dispatching Service Market). The Teverola and Sparanise plants managed to achieve satisfactory results, although not as good as those in the same period of the previous year. The situation of the COGEN/Imola plant remains a problem as, despite being offset by the positive district heating results, it is constrained by cogeneration restrictions meaning it cannot operate in the DSM.

As far as trading in the electricity sector and environmental certificates are concerned, operations in France in the half-year increased and operations were launched in Germany and Austria, with positive results, in line with forecasts.

Special attention was dedicated to the management/optimisation of Hera Commís purchase portfolio through transactions carried out on the Stock Exchange and over-the-counter (OTC) platforms.

As regards management of commodity and exchange risk, operations for both gas and electricity through a concentrated portfolio which provides for destructuring formulas, the netting of positions and hedging of volumes, were particularly effective in the first half of 2012 as well. Hera Trading activated this instrument at the beginning of 2007 to manage hedging activities. It is proving essential for adequate and dynamic operations in both the wholesale and retail markets with risks constantly monitored and in line with the limits set in Group policies.